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If you’ve ever worked for an employer, then you’ve paid 6.2% of your paycheck toward Social Security.

In fact, you’ve paid twice that if you’ve been self-employed!

Technically, it’s only charged on the first $168,600 that you earn (as of 2024), but who’s counting? We fully expect to get a return on our investment in the retirement years. But the question is, when should we start taking that benefit?

Should we take it early, late or right on time?

The Early Starter

If your goal is to retire early, you may consider taking back those benefits as soon as possible. After all, why lend your money to the government for any longer than absolutely necessary?

The earliest starting age is 62.

If you’re still earning more than a certain threshold of income ($22,320 as of 2024), then your Social Security check is going to be reduced by $1 for every $2 that you earn over that limit.

But let’s assume there is no earned income.

The price you pay for starting early? A 30% reduction in the benefit.

If you have a spouse, he or she will be entitled to the higher of 1) their own earned benefits or 2) a percentage of yours. If they rely on your benefits, the reduction for them is 35% if you begin taking benefits at 62.

Keep in mind that the full retirement age for anyone born in 1960 or later is 67.

What happens if you wait to begin benefits until later?

From 62-64, the real benefit would have increased by 5% of the full benefit annually (5/12 of 1% monthly). From 64-67, it would have accelerated by 6.67% of the full benefit annually (5/9 of 1% monthly).

To take an example of $1,000/month full benefit, beginning benefits at 62 would generate $700/month. If that same person were to delay one year until age 63, they would receive $750/month.

The calculation is: [(5/12) x 1% x 12 months x $1,000] + $700

By taking benefits early, you’re giving up these guaranteed real increases in benefits every year between ages 62 and 67, in addition to the inflation adjusted growth. Where else in financial markets are you going to find a guarantee like that?

If you take the example from the IRS website, think about the exponential growth that would need to happen for a $700 benefit at age 62 to become a $1000 benefit at age 67. That’s about a 7.4% annual average growth rate.

Hold that thought.

Right On Time

If you wait until 67 to make withdrawals, the Social Security Administration has agreed to pay you a certain amount that can be viewed on your statement at My Social Security.

There is no limit on earned income for you to receive your full benefit at this age. That means you could continue earning any income you want while still receiving the full Social Security payments.

As we’ve discussed in another article, there is some uncertainty about the amount of Social Security benefits that the government can afford to pay in future years. While it’s impossible to know what future politicians will decide, I estimate it is highly unlikely that anyone already receiving Social Security benefits would see a reduction. I think it’s also unlikely that anyone within a few years of full retirement age would be significantly affected, if at all.

Like most things, if a reduction in guarantees happens, I expect it would likely be phased over a certain range of ages. The youngest would see the biggest cut in benefits. The oldest would probably see no cuts or very little.

For example, if I ventured a guess, it might be something like: at the time of the law change, anyone 55 and above can expect full retirement benefits. Anyone between 50-55 gets 90%. Anyone between 45-50 gets 80%. And anyone 45 and younger gets 75%.

This is just my speculation, of course. There has been no serious progress yet toward fixing the Social Security problem.

But my point here is that, if it were me, I would refrain from making a decision to take benefits early based only on the fear of a future reduction.

I expect the politicians will take that into account when they make the necessary changes.

Those Who Wait

Did you know you don’t have to take benefits at 67?

In fact, you can delay starting payments all the way until 70. After that, there is no further benefit to waiting.

For every year past full retirement age that you delay, the benefit grows by 8%, coming to approximately 24% higher at 70. In other words, the annual growth accelerates!

The benefit begun at age 70 is about 77% higher in real terms (inflation adjusted) than that begun at age 62.

If you count inflationary increases in there as well, it would even be higher.

What Age Should I Start Social Security?

Here are the facts that we know.

Earning a 77% real return over eight years as a government guarantee is hard to beat. That’s an annual average of 7.4% per year, in addition to Cost Of Living Adjustments (COLA) for inflation.

But here’s the kick.

Social Security disappears at the end of the beneficiary’s life. So even though the math is a no-brainer, it also comes down to life expectancy.

If you’re choosing between starting at age 62 and 67, the breakeven point is age 78 and 8 months. If you live beyond that age, it makes mathematical sense to start at 67.

If you’re choosing between starting at age 67 and 70, the breakeven point is age 82 and 6 months. If you live beyond that age, it makes mathematical sense to start at 70.

If you’re choosing between starting at age 62 and 70, the breakeven point is age 80 and 5 months. If you live beyond that age, it makes mathematical sense to start at 70.

Of course, depending on your circumstances, you may not want to take the chance. The benefit of taking withdrawals early is that you actually receive them. If something unfortunate happens, at least you got the benefit of what you paid for!

And finally, it also depends on your cash flow needs in the early years of retirement. Of course, you don’t want to be taking on new debt in retirement just to make ends meet. If that’s a risk, then it probably makes sense to go ahead and take the benefits as soon as possible.

Conclusion

What you’re probably noticing here is that it comes down to an educated guess.

It comes down to managing uncertainty in light of statistics.

In order to make a decision, be sure to consider these two main factors:

• Breakeven age of taking Social Security benefits early vs later
• Cash flow needs during the early years of retirement

There is no one-size-fits-all, as with most topics in the financial planning field. But now that you know what factors to consider, you can better plan for your retirement income.

And we’ll aim to make that Social Security check appear small in comparison with your overall retirement income!